By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com
There are a wide variety of tactics whereby gold and silver prices could be suppressed. Perhaps the most frequently used method over the years has been for central banks to dump their physical gold reserves onto the market through the use of leases. By doing so, it appeared to increase the availability of physical supplies while the central banks continued to report the entire amount of gold as still being in reserves.
The second of the two most common tactics is to sell paper contracts for future delivery of gold or silver. These sales in many instances are made by parties that simply do not have the physical metals to make delivery upon maturity of the contracts. Once again, this tactic makes it appear that there is more physical metal available than there really is.
In the past week, there have been some significant moves by those holding short physical positions to buy back their positions. When short sellers cover, they anticipate that future prices will be higher than current prices. Such moves squeeze available physical supplies. However, there are always more gloomy economic reports being released where even the spin-meisters cannot fully hide the truth.
In addition to this current strong demand for physical precious metals to cover shorts, there continues to be strong demand coming from the Middle East and Far East. As a consequence, gold and silver prices have enjoyed some strength over the past two weeks.
However, the US government has a multi-faceted bag of tricks that it could use to help hold down precious metals prices. Apparently, since some of the standard tactics weren’t working well last week, it expanded the repertoire. Multiple cooperating so-called precious metals experts, including Jon Nadler from Kitco and Jeffrey Christian from CPM Group, wrote more strident negative articles or gave interviews about future precious metals prices than they have in the past.
For example, last Friday, Jon Nadler wrote in his daily commentary, “Spot prices drew closer to the $1,600 psychological support level, falling for the first time in four days, with an initial decline of nearly $10 and a bid-side quote at $1,602.50 per ounce. VTB Capital analyst Andrey Kryuchenkov writes that ‘Bullion continues to grade with the single currency with little physical interest’ . . . .” Unfortunately for Nadler, this information is incomplete. After gold dipped to that low last Friday, it quickly recovered to close $17 higher than the bottom in US markets. Further, there several potential seven-figure buyers of physical gold who were simply unable to execute their orders because there was almost no physical metal to be had.
In general, the nature of the attacks on gold and silver were mostly name-calling against those who have the audacity to report what is actually going on in the physical markets. By using terms like “conspiracy theorists” and calling people equivalent to “birthers,” the attackers cast aspersions without having to discuss the facts.
Now it is true that gold and silver broke down below psychological trading points earlier this week. But prices did not drop because of the misleading information from Nadler, Christian, and others.
What you have to realize is that when there are a greater number and more extreme kinds of gold and silver price suppression tactics being used, that is a sign of near-term possibilities that prices could shoot upward. After all, if it was likely that prices really were destined to decline, it wouldn’t be necessary to artificially suppress them.
Patrick A. Heller was honored with the American Numismatic Association 2012 Harry J. Forman Numismatic Dealer of the Year Award. He owns Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Numismaster (under “News & Articles) . His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.